Startup Funding Club SEIS Fund
Tranche deadline extended: apply by 8 Dec 2021 for planned deployment in the current tax year
SFC Capital has informed us that for applications received by 8 December 2021, it intends to invest in a minimum portfolio of 10 companies (although tranches could be significantly larger) before tax year end (not guaranteed). You can view some of the companies being considered for investment in the Deal Pipeline document.
These are all small early-stage companies, so there is a risk some – or all – might fail and you could lose all your capital.
For investors happy with the high risks of SEIS, the Startup Funding Club SEIS Fund is one of the strongest offers available, in our view.
Originally set up as an angel syndicate in 2012, Startup Funding Club (SFC Capital) is now a leading early-stage investor. To date, it has invested in over 250 companies – 100 were added to its portfolio in the last 18 months. Indeed, a report from PitchBook Data (August 2020) named SFC as the most active Angel & Seed investor in Europe and the third most active in the world.
Funds from previous years have now started to return cash to investors. A partial exit in March 2020 returned 2x of the initial investment in cash. The remaining position is valued at 19.4x the investment cost before tax relief. Past performance is not a guide to the future – see performance below.
That said, most of the businesses are very early stage: they will have low or no revenue, so it’s very high risk for investors, softened somewhat by the tax relief. Investors should get exposure to high-growth innovative companies in a range of sectors, including digital technology, life sciences and consumer goods.
Read important documents and apply
- SEIS offer exclusive to Wealth Club for non-advised investors
- Europe’s most active Angel & Seed investor
- Evergreen fund investing in early-stage disruptors only
- Target return of £3 per £1 invested (not guaranteed)
- Targets very young portfolio companies in a range of sectors, including digital technology, life sciences and consumer goods
- Minimum 10 portfolio companies expected – last four tranches have invested in an average of 25 each
- Minimum investment £10,000 – you can apply online
Startup Funding Club (now SFC Capital, “SFC”) is as an angel investment club focused on very early-stage businesses. It identifies the opportunities for investment and provides ongoing support and expertise to the portfolio companies in which it invests.
One notable early success, which helped SFC get where it is today, is Onfido, an AI-based identity verification business. Impressed by the management team, SFC invested before the business even had a product; indeed, Onfido was incubated at SFC’s offices. The investment was SEIS qualifying but was made prior to the SEIS fund being set up. Onfido was identified as one of the fastest-growing businesses in the UK in 2019 and 2020 by The Sunday Times Sage Tech Track 100. Onfido has raised capital from investors such as Softbank, Salesforce Ventures, and Microsoft. In a secondary sale in 2020, SFC’s initial investors had the option to exit their investment for a 100x return on capital, not including SEIS relief. Note that past performance is not a guide to the future. In 2020 Onfido raised a further $100 million from TPG, an early backer of Airbnb and Uber, and is now reportedly considering a US listing following strong growth in the US.
In 2013, soon after investing in Onfido, SFC launched its first SEIS fund, one of the UK’s first. Since then, SFC has gone on to become a prolific seed investor. A recent report from PitchBook Data named it as the most active Angel & Seed investor in Europe and the third most active in the world, alongside names such as SOSV and 500 Startups.
The SFC angel network is a group of over 500 active angel investors from various backgrounds, many of whom have direct experience in building and investing in a successful young company. They invest alongside SFC investors and bring additional funding and experience to the portfolio. Angel investors co-invest alongside the fund. To date, SFC has facilitated investments in over 250 early-stage companies across a broad range of sectors and won numerous industry awards for angel and seed investing. In addition to the angel network, SFC has forged ties with some of the country’s leading universities and startup accelerators to further broaden its deal flow.
The SFC team is headed up by Stephen Page, CEO. Stephen’s background is in the software industry, having founded and exited a number of software businesses. Stephen is supported by Joseph Zipfel (featured in the video) as Chief Investment Officer. Joseph’s background is in investment banking and corporate finance. The wider team and board of directors of SFC have backgrounds in investment banking, software, corporate finance, and entrepreneurship. In total the team consists of 15 individuals, 13 of whom are actively involved with investment decisions.
Startup Funding Club (now SFC Capital Ltd) is the investment adviser to the fund, which is managed by Kin Capital Partners LLP. SFC Capital Ltd is an appointed representative of SFC Capital Partners Ltd.
New: Meet the manager – video interview with CIO Joseph Zipfel:
The combination of world-leading universities and Fortune 500 companies, specialist tech capabilities, great infrastructure, a pre-eminent financial centre, and supportive policies for SMEs make the UK a great place for startups.
The Fund aims to tap into this area of growth and invest in a portfolio of very early-stage companies with innovative products and disruptive technologies which have the potential to generate successful exits at a significant (tax-free) multiple of the cash invested. The team targets a return of 3x, not guaranteed.
Typically, at the point of investment companies will be less than two years old, have an initial version of the product or service which may be generating early commercial traction but usually have only low or no revenue. At this point, valuations tend to be lower and the risks very high.
SFC seeks to acquire meaningful strategic shareholdings in each company, so as to be able to influence the management of these ventures and put the right expertise, support and governance structure in place from the very beginning. This includes attending board meetings (either as observer or director), establishing the SFC Alumni Network, and establishing the SFC Partner Network.
The Startup Funding Club SEIS Fund targets a return of £3 per £1 invested after five to eight years, excluding any SEIS tax reliefs. Returns and timeframes are not guaranteed.
SFC aims to exit investee companies within five to eight years, not guaranteed. So far, it has completed two exits via a trade sale (MyFutureNow and Bean ), one partial exit via a share buyback (Bloom Magic) and a partial exit through a secondary buyout (Cognism) . In addition, SFC may also consider an IPO if appropriate. Please note, exit options and timeframes are not guaranteed and past performance is not a guide to the future.
Investors in the current iteration of the fund can expect exposure to a minimum portfolio of 10 companies, however, tranches could be significantly larger – the last four SEIS tranches had an average of 25 companies each. As a generalist fund, investee companies will operate across various sectors including digital technology, life sciences and consumer goods. SFC seeks to invest subscriptions over a twelve-month period following a closing date.
Below are portfolio company examples from previous iterations of the SEIS fund. They are outlined to give a flavour of the types of companies you might expect but may not be part of a new investor's portfolio. SEIS funds tend to be managed on a discretionary basis so each individual portfolio is likely to be different.
A spinout from University College London, Novai is a biotechnology company aiming to improve the detection and treatment of chronic eye diseases.
In chronic diseases such as glaucoma, indicators of the disease progression are often only detected after irreversible damage has already occurred.
Novai’s proprietary technology (DARC) – which combines a patented biomarker with AI – allows detecting disease activity at a cellular level using only standard imaging equipment. This could help pharmaceutical companies de-risk and accelerate clinical development of glaucoma and age-related macular degeneration (AMD) treatments, providing significant cost and time savings.
DARC was developed over 10 years of research by Professor Francesca Cordeiro and received more than £4 million in funding from the Wellcome Trust and UCL. SFC led a £500,000 seed round in 2020, the funding will be used to start the commercialisation phase of the technology. Novai has already secured contracts with several large pharmaceutical companies in its first trading year.
Cognism is one of the UK’s fastest-growing technology companies. It has developed software that uses Artificial Intelligence to help sales and business development professionals find prospects.
SFC took part in the first funding round in 2017 through its SEIS fund and followed on in 2018 through its 2017/18 EIS Fund. At the time of SFC’s first investment, Cognism was still pre-revenue; in 2021 it announced it had reached over $11 million in annual recurring revenue.
To date, SFC has completed two partial exits from its holding in Cognism.
In March 2020, SFC elected to sell c.20% of its initial shareholding as part of an institutional funding round. This generated a return of 2x the initial investment in cash, with the remaining balance valued at 19.4x, before tax relief – past performance is not a guide to the future.
In early 2021, Cognism completed a $12.5 million institutional funding round led by AXA Venture Partners alongside Swisscom Ventures, Investiere and VentureFounders. This provided SFC with a second partial exit opportunity at a higher multiple – past performance is not a guide to the future.
MyFutureNow (example of previous exit)
MyFutureNow developed technology to help investor trace and consolidate old pensions quickly and easily.
SFC invested in the company in April 2016, recognising the technology was solving a real market need and the company was led by an experienced and credible management team.
In August 2019, SFC exited its investment from Finovation Limited, trading as MyFutureNow (MFN), which was acquired by UK pension giant Legal & General (L&G).
The transaction returned 3.2x the investment cost before tax relief, which corresponds to an IRR of 86%. Past performance is not a guide to the future.
VN Carbon Capture (example of previous failure)
As is to be expected with very young businesses, SEIS companies can and do fail.
One failure in the SFC previous portfolio is VN Carbon Capture (Gas) Ltd which received investment in March 2014.
The company was formed to pursue the commercialisation of a discovery by researchers at the University of Newcastle allowing a cost-effective capture and recycling of CO2 using nickel nanoparticles which could translate into significant commercial potential. The investment was made on the back of a promising feasibility study and funds were used to run further laboratory tests and simulations with a view to develop the research into industrial technology. Unfortunately, the research showed the technology was not economically viable and did not get commercial traction despite receiving interest from the scientific community, the press and industrial companies. The company dissolved in 2017.
As can be expected when investing very early stage, investments can take time to mature – SFC expects investment holding periods of up to eight years. Now, around eight years from SFC's first SEIS fund, there appear to be some encouraging signs. Unrealised returns are attractive in our view and three investments from earlier funds have now achieved profitable exits, enabling the fund to start returning some capital to investors.
For instance, for investments made more than five years ago (2013/14 to 2015/16), on average for every £100 invested the fund has generated £135.64 in unrealised returns (before tax relief), and £5.65 in realised returns. Note: past performance is not a guide to the future. The chart below shows the average performance of the total subscribed into the funds each tax year, based on valuations as at 30 June 2021, expressed on a £100 invested basis. Please note, individual investor portfolios’ performance will deviate from the average.
Source: SFC, as at 30 June 2021. Figures are net of all fees. Past performance is no guide to future performance. These figures do not include any realised returns which would be available through loss relief. In the above examples, initial tax relief of up to 50% could also apply. Remember tax rules can change and tax benefits depend on circumstances.
Risks – important
This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice.
SEIS investments are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They also tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks.
Tax rules can change and benefits depend on circumstances.
This SEIS fund invests in early-stage businesses which are more likely to fail than larger ones. So you should expect a number of failures in the portfolio, or even be prepared for all companies to fail.
In a portfolio of ten companies, one might do very well (although there are no guarantees), several could fail and the others might just tick along.
Earlier-stage companies usually take longer to mature. Further funding rounds will be common so there is risk of dilution. Earlier-stage companies usually take longer to mature.
Exit could take longer than the three-year minimum hold period. Equally, an early exit could affect SEIS tax relief.
A summary of the main charges and savings is shown below. Some of these will be payable by the investor, whilst others by the investee companies. The investment may have additional charges and expenses: please see the provider documents, including the Key Information Document, for more details.
|Full initial charge||2.5%|
|Wealth Club initial saving||—|
|Net initial charge through Wealth Club||2.5%||Annual management charge||—|
|Performance fee||30%||Investee company charges|
More detail on the charges
Timing of the offer
The fund anticipates taking up to twelve months to fully deploy investor capital following the closing dates. However, it may take longer.
SFC has informed us for applications received by 8 Dec 2021 (extended from 30 Nov, subject to capacity), SFC intends to fully deploy investors' capital by the end of tax year 2021/22. Although this is not guaranteed, SFC has not missed a deadline for investing subscriptions in seven years.
There are several reasons why SFC stands out as an SEIS fund offer, in our view.
Its strong ties with leading universities and accelerator programmes, combined with its own angel network, give the investment team access to a strong pipeline of deals.
As a result, in recent years, SFC has grown to become Europe’s leading startup investor (by number of investments made) and is ranked the third most active in the world. This is relevant to investors considering SEIS for two reasons.
Firstly, the level of diversification is rare among SEIS funds and should be welcome, especially considering the fund invests at a very early stage, when risks are highest. The additional SEIS3 paperwork involved is simplified somewhat by a tax summary that SFC provide.
Secondly, having a healthy pipeline of new deals means the fund should be able to deploy investor money in a timely manner, making tax planning easier. Indeed, SFC has not missed a deadline for investing subscriptions in seven years, but there are no guarantees.
Moreover, the structure SFC has put into place to offer support to its portfolio companies post-investment adds weight to the offer, in our view.
For experienced investors keen to get exposure to the bright new businesses of tomorrow, who are happy with the risks of SEIS investment, we think this could be one to consider.
Read important documents and apply
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.
- Target return
- Funds raised / sought
- Minimum investment
- 8 Dec for allotment in 2021/22